Financial Advisors: Finding Good Financial Help In 3 Easy Steps
By Dr. Steve Sjuggerud, President, Investment U
Friday, May 7, 2004: Issue #335
“People who spend a week choosing a furniture refinisher will sign up with the first [financial planner] who calls. People who circle junkyards for matching hubcaps will buy mutual funds without reading the prospectus. People who check the expiration date on cottage cheese wouldn’t think of investigating the background of their broker. They know next to nothing about whether the broker has made or lost money for clients, whether he’s been reprimanded or sued, or how long he’s been in the investment business.” ~A Fool and His Money, by John Rothchild, 1988
Go ahead… hang a shingle and call yourself a financial planner…
And that’s scary. Think about it: When you seek out “professional” help, just how “professional” is the help? You need to know.
So that’s what we’ll cover today how to find the right help for you how to do the homework on the person that will have your money and ultimately, how to find the right financial advisor that can actually do you some good.
The Secret That The Investment Industry Doesn’t Want You To Know About
After finishing a degree in finance at the University of Florida, I started out as a stockbroker. This is when I was faced with the reality of it all stockbrokers are basically salesmen that don’t know anything about investing
There are two basic facts: Stockbrokers are not paid to LEARN about investing. They are paid to SELL MORE. The more time they spend selling, the more they make. The more time they spend learning about investing, the less time they’re spending selling. It’s to the point where a broker may be better off spending his time reading books on “how to sell” instead of “how to invest.”
This seems crazy, I know. But it’s true. How could it be?
It comes down to the division of labor Investment firms have a research department, an operations department, and a sales department. The sales department (the brokers) is not supposed to concern itself with exactly what it is selling. That is for the research department (or the home office) to decide. Just as folks in the operations department aren’t allowed to make sales calls, the stockbrokers aren’t allowed to make investment recommendations that haven’t been approved by the research department or the home office.
In other words the brokers that deal with the public aren’t allowed to think for themselves. This is how firms get around worrying about whether or not their brokers actually know anything they don’t let them think for themselves.
How To Find An Advisor With A Brain
It’s hard, actually. But there are a few things you can do
For financial planners, there are a variety of things you need to do. Here are three of the most important. Taking these three easy steps won’t take much of your time at all and you’ll sleep much better knowing that you’ve done your homework:
(1) First, remember, this guy has your money you ought to know what he’s done in the past. You can know exactly what he’s done for the last 10 years by asking to see his Form U-4 or his Form ADV (ask for both parts of the ADV). Instead of asking, you can find out directly from the NASD at http://www.nasdr.com/ or by calling 800.289.9999 (or try the SEC at http://www.sec.gov/).
If you see something on this form that you do not like (like a disciplinary action), do not immediately dismiss the professional. Remember that a planner may have hundreds of clients that total thousands of transactions a year. Over the course of 10 years, the odds are there will be some type of mishap. Confront your prospective planner and ask about the particular incident(s). If you are not satisfied with the explanation, then move on to another planner.
(2) There’s no substitute for experience. When you look over the form, you’d prefer to see that he’s been at this at least five years. This way he’s worked through at least a portion of a bull market and a bear market with real money on the line. So 28 might be a good minimum age – any younger, and you’re taking a risk, no matter how bright they seem
(3) Hit ‘em with questions How many clients do you currently have? What’s your work history? And education? (Line it up with the ADV to see if the truth is being stretched.) Do you hold any financial planning designations like a CFP or a ChFC? What is your area of specialization? Who will work directly with me? How are you paid for your services? What do you charge for different services? Etc.
The point is, get nosy. It is your money. Another thing you can do is even ask to see another client’s statement that has similar objectives as yours to see how the advisor has done. The financial planner should easily be able to provide you with a statement with the client’s name marked out.
Actually Do It
Most people will not bother to do these easy things. As a former broker, I can tell you, I talked to a ton of people, and only one or two asked for my Form ADV. I didn’t find it insulting on the contrary I thought these people might be knowledgeable investors that may turn into good clients.
The best advice going forward is, after you’ve done all your homework and found people you like, you can’t just go to sleep You can’t just hand your life over to a financial planner and tell him to “make it okay.” It means you’ll have to do a little homework (which, if you’re reading this, is exactly what you’re doing).
If you don’t even know where to start, here are two different financial advisors that I’ve known well for over 10 years Jeff Winn and Howard Goldstein. Jeff is one of my best friends I was the best man in his wedding. I trust him 100%. And Howard is like family in fact, my wonderful cousin Alison will most likely answer the phone if you call Here’s their contact information:
Jeff Winn, International Assets, 800.432.4402 or 407.254.1522; e-mail: jwinn@iaac.com.
Howard Goldstein & Samuel Jacobs, Peregrine Financial, 877.539.1004 or 407.539.1004; website: http://www.pfswp.com email: hgoldstein@pfmail.com.
Good investing,
Steve
Today’s Investment U Cribsheet
- Above I mention a great book by John Rothchild, A Fool and His Money. I would recommend that anyone looking to expand his understanding of investing read it. To order a copy, just visit http://www.amazon.com/exec/obidos/ASIN/0471251380/theoxfordclub
Related Investment U Articles:
- Options Market Myths DeBunked: How to Handle Risk and Brokerages
- Is Your Investment Advisor Capitalizing on Your Fear?
- The Best Investment You Can Make In Four Minutes
- Don’t Be a Pawn in Wall Street’s Game
- The “Pick Your Price” Trade That Brokers Don’t Want You to Know About
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